We Will Bury You...Eventually?

Few probably recall (I was not even born yet) the November 18, 1956 Western
ambassadors reception at the Polish embassy in Moscow where the then Soviet
First Secretary of the Communist Party Nikita Krushchev supposedly uttered the
famous quote: “We will bury you.”The actual line apparently was apparently something to the effect of
“Whether you like it our not, history is on our side. We will bury you.”Coming during the Cold War when
the threat that the economy of Soviet Union and communism would overtake the
world was taken seriously, the line took on a life of its own.Krushchev apparently made a similar
quote to Richard Nixon at a technology exhibit to the effect that the Soviet
Union would eventually pass America and then “We’ll wave to you.”

Of course, history has shown that the Soviet economic threat
was never as great as feared.Nevertheless, we often feel a need to outline economic threats to our
economic welfare no matter how credible they might be.Perhaps it is all part of being
human.The latest iteration of the fear of economic eclipse is of
course the contention that China and India are on their way to becoming the
world’s largest economies and that China in particular is becoming preeminent
and will soon surpass the United States.The total size of the Chinese economy as measured by GDP is expected to exceed the United States in the near future if it has not already done so. Official statistics can be a lagging
indicator of economic power.

As Angus Maddison has shown with his GDP data (See Figure),
the rise of the West is an economic phenomenon coinciding with
industrialization.If we go back
to 1500, Asian economies accounted for 60 percent of world output but by 1950
it was the West that accounted for 60 percent of world output with Asia's share below
20 percent.With the diffusion of
technology and economic activity, a more multi-polar economic world is to be
expected and by 2001, the share of the West had declined to 50 percent and Asia
grown to 30 percent.

However, I also think one has to step back a bit and think
about output in per capita terms (See Figure). If one plots per capita GDP in
nominal US dollars one gets a somewhat different picture of where China and
India stand in terms of more developed economies such as Canada and the United
States.True, these are not
purchasing power parity estimates but the point I’m trying to make should still
stand.In terms of sheer economic
mass because of their large populations, China and India are going to soon be
the largest economies in the world but their per capita GDP is still quite low
compared to Europe and North America.Moreover, it will be a good many years before their per capita incomes and
by extension per capita welfare approaches North American levels.After all, as China and India grow it is
not as if the rest of the world is going to stand still.

The salient fact for anyone interested in the international political economy is that the US has been the standard for wealth in all of our lifetimes. Soon at least China will surpass the US while being a country where the average person lives no better than a Mexican currently does. Countries with the largest GDP have the most leverage in trade negotiations and in n issues like GHG emissions. The Chinese and the Indians will not approach these negotiations as wealthy countries but from the perspective of middle income countries (lower mid income?) hoping to escape the middle income trap. I don't know that we can fathom the kind of claims , be they protectionist, or rights to emissions that these countries will make based on per capita GDP while we fixate on the aggregate values.

I think remembering the Cold War context helps in this case. "We will bury you" was interpreted to mean that the Soviet's industrial (and therefore war) capacity would soon pass that of the Americans. A more relevant comparison today for the US and other nations would then be the economic "surplus"; the total amount of production not required to provide substenance for the population (and therefore potentially mobilisable in time of war.)

Simon van Norden: and those data need to be interpreted outside of ideology and political posturing. In 1981, the CIA revised its estimate of Soviet GDP to barely one half of its former calculations. The share of defense in GDP went from 20% to 40%. Instead of correctly undrestanding the the Soviet were using all ( and possibly more) of their surplus and thus were on the ropes with no surge capacity left, the Reagan administration claimed that the effort has increased and the U.S. needed to do the same.
A few years later, when the Wall fell, it was revealed to the public what the situation really was. For example, Soviet and East German pilots, the best trained of the Warsaw Pact, flew barely 60 hours/year. A NATO pilot at that level (out of a staff job say) would have been considered unfit for duty and sent to flying school for proficiency training. The CIA and NSA knew this from electronic monitoring. The Cold War had been won for a long time yet the politicos lied to us...oh what's new about that?

The interesting book Red Plenty (I don't remember the author's name) shows that the "We will bury you" probably meant that there would soon be a torrent of consumer goods for Soviet citizens leaving the Western standard of living far behind. Soviet leaders believed they had the best economic system but with central planners prohibited from using prices or profits in their allocation scheme, everything soon fell apart.

"It's worth noting that the period between 1500 and industrialization contained large transfers of wealth from Asia and Africa to the West."

You sure about that? Before 1800, the UK and other industrialized countries were shipping vast quantities of silver bullion to China to finance western demand for silk, china and tea. Under the standard mercantalist analysis of the era (and, unfortunately, in too many circles these days), the west was shipping wealth to China. It was only with the entry of the UK into the Opium trade in the late 18th century, that the balance of trade righted and, eventually (in the 19th century), reversed itself.

In any event, the "the west transferred wealth from the rest" model of economic development is ahistorical - the first European colonial empires, Spain and Portugal, were economic basketcases by 1800, and the large colonial empires in African and Asia of the rich European countries (Britain, France, Germany) didn't occur until well into the 19th century, at which point Europe (and its offshoots) were already far ahead of the rest of the world in terms of economic development (making it easier, not coincidentally, to conquer it). The European conquest of Asia, and then Africa, was a product of Europe's greater wealth, not a cause.

"For example, Soviet and East German pilots, the best trained of the Warsaw Pact, flew barely 60 hours/year."

This was always a source of dark amusement to Egyptian fighter pilots. Berated by their Soviet "trainers" for their alleged incompetence against the Israelies (whose pilots routinely flew 60 hours a month in peacetime) and their inability to effectively use the newest Soviety fighters against vintage Israeli aircrafts, they'd have a good chuckle when the Soviets would promptly get shot-down.

Bob Smith: on your first point: not only wealth may well have been the cause of colonialism, but the whole adventure was probably counter-productive to the colonizers. ( not counting the disruption to the colonized.)
On your second point: the centalized air control left the Soviet pilots unable to react promptly in combat conditions. The efficiency of decentralized decision-making extend far beyond economics...

Transfers of wealth can be broadly extractive via conquest, not via silver-financed trade. I don't think it can be disputed that the West conquered vast regions of Asia and Africa to yield industrial inputs, and designated assorted Western institutions to receive the rents of these inputs.

The European conquest of Asia was not complete and depended in varying degrees on local circumstances. The Dutch conquered Indonesia, the British played off one local monarch against another in India until they ruled the whole subcontinent, a process which took 150 years. Mutiny was always the fear there, from the famous 1854 Mutiny to the 1946 Naval Mutiny, which was what finally persuaded the British to leave India. The Indian forces could no longer be counted upon to be loyal and the British did not have the manpower to rule India without them. Atlee made a rational decision.

China was not conquered per se, but dominated through unequal treaties. China had been in a tailspin as a power since the 1400's and it hit rock bottom in the late 19th and early 20th Century. That the the worst period of weakness in Chinese history in the last millenium. China and India are simply returning to what was normal for most of human history, two areas where dynamic and advances societies flourished for most of human history.

I disagree mostly with the notion that there was a vast transfer of wealth from Asia and Africa to Europe. True, there was violence, plunder, and imperialism, all reprehensible. But it's also true that the Europeans were taking goods in those regions and creating enormous value out of them because they had the technical ability to do so. Rubber plantations, the development of a tea industry in India, mining in Africa, and other examples--these were not cases where the Europeans stole the existing industries from those countries, but where they created industries and grew proportionately rich.

Yes, the imperialism was awful (King Leopold in particular), and we can't really separate that from the commercial activities that grew under its watch. There is no glorious free-market story here. But ultimately the wealth grew because the colonizers created new wealth, not because they stole it. Likewise, many people see the offshoring of manufacturing jobs to Asia as a kind of plunder, even though it involves lowering costs in the rich world, and the creation of new wealth in Asia.

"Transfers of wealth can be broadly extractive via conquest, not via silver-financed trade. I don't think it can be disputed that the West conquered vast regions of Asia and Africa to yield industrial inputs, and designated assorted Western institutions to receive the rents of these inputs."

Nice theory, but as Determinant points out, also inconsistent with historical fact. Yes, the west conquered vast swaths of Asia and Africa, but it did so at a time when its economies were already the world's dominant economies. India was not fully "conquered" until well into the 19th century, and until the Opium Wars in the mid-19th century, China was largely isolated from European influence. In either case, the conquest of India or the defeat of China was a function of European prosperity (notably the ability to sail large navies and armies to the other side of the world, or to hire local soldiers), not a cause of it.

Ditto for Africa. It was largely unexplored and, apart from the Boer colony in South Africa (which was hardly a source of wealth to much of anyone, including the Boers), went largely unconquered and uncolonized until the scramble for Africa after 1881 - at which point, the European power were already modern industrial states. Certainly I think it could be disputed that the West "conquered vast regions of Africa to yield industrial inputs" since, in practice, the West conquered vast regions of Africa so that the French/Germans/British wouldn't, without regard to whether it was actually worth conquering.

Moreover, as Jacques points out, rightly, it's far from clear that colonialism was particularly profitable for the colonizer. Many of the gains (for example, from trade) would have been available in the absence of a colonial government (and, for an example of this, we might look no further than the relationship between Britain and the newly liberated United States following the war of independence). And the cost of administering, defending and investing in empire was non-negligeable.

Moreover, the counter-examples are telling. Its pretty clear that the conquest of vast swaths of South America did precious little for the wealth of Spain or Portugal (both of whom entered the 19th century poorer than their soon-to-be ex-colonies), nor did the loss of the wealthiest British colonies in North America (namely the United States) do much to dent Britsh wealth at the end of the 18th century.

"After all, as China and India grow it is not as if the rest of the world is going to stand still." In a resource and energy constrained world, maybe the rest of the world will have to stand still, perhaps even go backwards, to accommodate Chinese and Indian growth. It is not, after all, as if there is enough oil, or CO2 absorption capacity, or water for agriculture, or nitrogen absorption capacity, to maintain India and China at anything near US levels. A glance at oil consumption shows, for instance, that the growth in use in China and India over the last five years has been at the expense of the US and Europe. You can define growth so that it does not mean increased consumption of things, but I doubt that is how the average Indian, Chinese or even US person understands it.

It's far from clear that colonialism was particularly profitable for the colonizer. Many of the gains (for example, from trade) would have been available in the absence of a colonial government...

If I understand the present historical econometrics correctly, in fact colonialism has been shown to be net negative, in part because conquest was so very expensive in blood and treasure. However, select classes in the colonizing nations made off very well indeed, at the expense of those recruited to do battle and pay taxes. At the same time, the colonized did very poorly.

But regarding gains from trade: in fact trade would not have been available, because many of the wars of conquest were carried out precisely because the targets resisted opening to trade and compromising their own extractive feudal systems (just because the colonizer is maliciously greedy doesn't mean that the colonized can't be maliciously greedy too). The threat of foreign-backed internal revolt was enough to make assorted regimes in China and Japan pre-emptively block incoming foreign ships for centuries. The no-colonization outcome is where no trade happens, however gainfully on net, because of (very real) military threats to the pre-colonial ruling class, as the Indian subcontinent demonstrated.

David et al - the history is complicated. Not all conquest was expensive (how much did it cost to acquire Iowa or Kansas or California?), sometimes it paid well, sometimes it altered he economic and social structure of the conquerors to their ultimate detriment. In Asia, the Europeans often muscled in on long-established trade networks, and captured by force the lion's share of the profits. India, for instance, exported manufactures to Europe and China - the British first pushed others out of the trade, and then used their local military and political dominance to alter the terms of trade to their advantage by eg forcing wages in the textile sector down. The recent economic history suggests that for those that did it well, imperialism was very profitable indeed. Neither China nor Japan blocked trade as such - both wanted to control it to avoid major social unrest. The gainfully on net is not much net when you factor in the impacts of civil war or other breakdown in governance.

Again, I think we have to question the universality of that statement. No doubt there are instances of the colonized were unambiguously worse off (Native Americans, being the obvious example). On the other hand, colonization was not without its virtues (as much as people don't want to admit it). Just because a colonizer is maliciously greedy (and I'd suggest that wasn't universialy the case), doesn't mean that there aren't benefits to the colonized. The forcing open of Japan's market to trade by Commodore Perry was, no doubt, driven by greed, but would the Japanese have been better off under the continued rule of the Shogun? That isn't a sure bet.

Moreover, it's worth keeping in mind that not all colonization was motivated by greed - the scramble for Africa was driven by gold and glory, yes, but also by God (the three Gs)and led, amongst other things, to the eradication of slavery in Africa (a phenomenon which long pre-dated the arrival of Europeans in the 15th and 16th century) and elsewhere - query whether being colonized by the British was worse than being enslaved by Africans/Arabs? As you note, it's not as if pre-colonial governments/cultures in much of the world were neccesarily beacons of virtue. The counter-factual "but for colonialism" scenario isn't obviously a universally rosy one.

Actually, my first question is - why should we be worried about China and India surpassing West in economic growth? If it is military aggression that is the reason, then I think we are safe. In fact I am convinced that it is not economic growth that but rather economic growth in a country that did not finish its Demographic Transition into stage 4. If you see high economic growth in authoritarian country with high birth rate - it is very likely that such country will be very aggressive. It may sound as cynicism but if you live in a country like WWII Soviet Soviet Russia with total fertility rate 4.38 you don't care that much if one or two children die in the war. You are still left with more to go around compared with countries like WWII UK with total fertility rate of 1.83.

If anything I would be vary of any country that is capable of waging truly modern war without casualties using modern technologies. So it is mostly developing countries that should on constant lookout not to be tied into struggles of the powerful giants. But if we analyze this angle there is much more they have to fear - for instance famine induced by high food prices due to expanding biofuel industry in rich countries can be as deadly for poor countries as any war.

Of course there always is a possibility of catastrophic event where two superpowers that have huge military arsenal. But to do this you don't have to be particularly rich - you just have to have access to WMD (as is it is now with Iran). So in short, I think that rich countries have very little to fear from military consequences of economic growth of developing countries - given they go through demographic transition at the same time.

"It's worth noting that the period between 1500 and industrialization contained large transfers of wealth from Asia and Africa to the West."

Not true, under any reasonable use of the words 'large' and 'transfer' i.e. 'proportionately large relative to industrialization' and 'involuntary transfer of wealth'. Deirdre McCloskey documents this in "Bourgeois Dignity: Why Economics Can't Explain the Modern World". The most extreme extractive efforts of the European empires were small in comparison to the acceleration of per capita GDP growth in that period. Hence imperialist exploitation is a statistically inadequate explanation of the origins of industrialisation.

Dan Kervick,

"Well, we don't need the Chinese to bury us in the 21st century. We are perfectly capable of burying ourselves in political indolence and laissez faire degeneration."

I don't regard 40-50% of national income being spent by the government (a record in US peacetime history, BTW) as "laissez-faire".

The scramble for Africa is had very few economic benefits for the participants. It was also a blip, Europe exited Africa by the end of the 1960's, 1975 for Portugal.

The British concern for Africa, aside from Cecil Rhodes gong-show was to ensure that the Indian Ocean coast remained British dominated so that the route to India would be safe. That was why Egypt and South Africa were centres of British power, and the rest was to protect that or to prevent a hostile base, like Kenya.

After India was let go, the British African empire had no reason for existence so it was liquidated.

The French colonial empire in North Africa similarly had little reason for existence other than French aggrandizement and De Gaulle similarly realized that and let it go.

I don't regard 40-50% of national income being spent by the government (a record in US peacetime history, BTW) as "laissez-faire".

W., too much of that income is spent on military and transfer payments, and not enough on strategic national economic investment.

I have read a few people commenting very favorably on Paul Volcker's latest NYRB essay as pointing the path our government should take in the US. But to me, the essay summons nothing to mind but a republic of old people getting older and balancing their checkbooks, a place where nothing much interesting happens.

I'm worried that the country has settled into the long period of boomer doldrums, where the themes will be secure and passive stagnation and vacant complacency, organized around nothing more ambitious than the humdrum incremental improvement of consumer toys and health insurance packages, as those tired and very populous older voters who are out of ideas wait for the grave and whistle Dixie, watching the planet going down the toilet and more ambitious people abroad overcome their grandchildren economically and politically.

"too much of that income is spent on military and transfer payments, and not enough on strategic national economic investment."

I agree on the first part of that sentence, but military and transfer payments is still doing something, ergo not laissez-faire. The current problems cannot be attributed to laissez-faire policies in the West, which in the aggregate don't exist, but due to a bloated state and bad macroeconomic policy: too weak an engine and not enough pressure on the accelerator.

It's less measurable, but the regulatory burden in most Western countries has got higher over time, not lower. As Friedman says, there was a revolution of small government thought in the West during the 1970s and 1980s, but not, in general, a revolution in small government practice.

I agree with your last two paragraphs, even if we disagree on the details of the alternative.

W. for much of the last 300 years, through the rise of the modern global economy, the industrial revolution and the revolutionary liberation of commerce, industry and democratic empowerment, the accelerator has been strong state support for economic development - roads, bridges, dams, tunnels, canals, schools, ships, rockets, satellites, research institutions and energy sources. There has always been a partial socialization of resources and investment that we now stupidly deride as "pork barrel spending" and "earmarks". The contemporary illusion that this development was all accomplished through private entrepreneurial activity is crippling us, as is our very bad habit of thinking of ourselves as "developed" countries rather than "developing" countries. The way I see it, a society that uses its government only for external defense and a bit of redistribution, but leaves its markets, capital resources and productive enterprises alone to do whatever they damn well please without any overarching strategic plan is a laissez faire society. It is a society that is drifting passively rather than one that is choosing its future with agency and striking out for it with ambition.

There is no such thing as a "developed" country. It's develop or stagnate. The development needed in the 21st century will be different than that needed in the 18th, 19th and 20th centuries - less raw material driven and more brain driven; somewhat less focused on weighty material infrastructure and more on efficient social and organizational infrastructure and networking; less focused on cannibalizing the planet and more focused on sustaining the planet's health and livability. But we are talking about the need for massive, expensive and labor-demanding projects to restructure our existing systems, and to achieve a level of global coordination that is historically unprecedented. These things aren't going to self-emerge out of the local entrepreneurial satisfaction of individual consumer desires, coordinated by nothing but the price mechanism. The problem of building the next human future is not just a scaled-up version of the problem of finding a replacement for the Twinkie.

"the accelerator has been strong state support for economic development - roads, bridges, dams, tunnels, canals, schools, ships, rockets, satellites, research institutions and energy sources"

I think that the state is not the necessary provider of most of those, and will tend to crowd-out non-violent developments in these fields. I also think that they are as much the effect as they are the cause of economic development.

"The way I see it, a society that uses its government only for external defense and a bit of redistribution, but leaves its markets, capital resources and productive enterprises alone to do whatever they damn well please without any overarching strategic plan is a laissez faire society."

Even if that's how you choose to use the term, can you give any examples of any such society existing today?

"These things aren't going to self-emerge out of the local entrepreneurial satisfaction of individual consumer desires, coordinated by nothing but the price mechanism."

Why not? Can you give an example of a government initiative to develop social networking that has had a bigger impact than facebook? And are government organisations really so superior to voluntary organisations in their structuring and networking?

Furthermore, the dichotomy between the satisfaction of consumer desires and "state support" creates a false choice.

"The problem of building the next human future is not just a scaled-up version of the problem of finding a replacement for the Twinkie."

Just because the market is so good at the latter, it doesn't mean it isn't suitable for the former. Efficiency is not proof of inefficiency.

So during that incredibly economically transformative period of US history from 1790 to 1916, federal spending never exceeded 5% except during the Civil War period. Yet the challenges of that period in terms of economic development were immense.

Outside of World War II, the US federal government has never been so big in relation to the rest of the economy. The list of regulations has never been so long. Net US government spending-

http://www.usgovernmentspending.com/us_20th_century_chart.html

- has never been so high. We can say this that or the other about WHERE the federal government is or is not doing things, but the big picture is utterly unambigious.

The Canandian story is more complex: public spending is proportionately smaller than in the 1980s and 1990s, but bigger than in the 1950s and 1960s. I struggle to call a society where 2/5ths of spending is by the government a "laissez faire" society, at least while keeping a straight face.

That's one, although the US postal system has a 227 year-odd headstart on modern social networking sites generally.

Would you say that a monopoly is likely to be the best way to handle a potentially competitive service?

It's interesting how the US postal system is an example of how the modern US government is not a "only for external defense and a bit of redistribution, but leaves its markets, capital resources and productive enterprises alone to do whatever they damn well please without any overarching strategic plan". As far as I know, only express mail is open to competition in the US, presumably because of pressure from businesses.

"the accelerator has been strong state support for economic development - roads, bridges, dams, tunnels, canals, schools, ships, rockets, satellites, research institutions and energy sources"

I think that the state is not the necessary provider of most of those, and will tend to crowd-out non-violent developments in these fields. I also think that they are as much the effect as they are the cause of economic development.

Facts are troublesome things. Regardless of your personal preferences, the state in the United States and in most other countries historically has been the dominant provider of those. Or a key agent. I worked for a while at a company that manufactured naval winches, the customers were various navies from around the world. Without government contracts the entire company would not exist and neither would the technology. The company had tried to diversify into the civilian sector but that effort failed.

All transportation infrastructure in the US has historically had heavy direct or indirect US government support. Railroads were the most free-market in their development, but they relied heavily on the subsidy of free land grants to sell off and make a profit from.

The list of regulations has never been so long.

A false dichotomy and a straw man. Regulation is not directly proportional to spending. I applied to a Canadian government regulator for employment, that program only spends $24 million a year, but it has its own Act and a lengthy list of regulations because it deals with consumer products. CPP and OAS, OTOH, have much, much higher spending but far less regulation and legislation, they don't need so many just to collect money and deliver cheques.

The Bank Act and the OSFI had recently garnered a reputation and sound regulation and a competent regulator and the financial sector has not suffered for it. Australia, the UK, France, etc. all have concentrated banking sectors too so let's not get into Big 5 bashing.

The provincial Insurance Acts are a fine example of heavy regulation but it costs relatively little to administer and its mostly geared to contract honesty and prevention of known schemes, problems and dilemmas from the past, so they won't be repeated in the future.

So this trope about lengthy regulation and large government, W. Peden, is neither informed, accurate nor helpful.

"Without government contracts the entire company would not exist and neither would the technology."

The former is true; the latter is unproven.

The rest of that section of your comment doesn't directly address what I said, which was about necessity and cause & effect.

"Regulation is not directly proportional to spending."

Agreed: that's why I covered both the quantity of regulation and the net amount of government spending as a percentage of GDP. Ideally, I would have also covered the scope, severity and impact of government intervention, but at that stage a lot of subjectivity is creeping in and one really needs article/book length arguments for making judgment X or judgment Y.

The reason I did that is because someone might correctly have said that it's not just how much a government is spending, but what a government is spending on, that determines whether is accurate to call it a "laissez-faire" government. After all, a government could spend 2% of GDP, but use that 2% to set out and enforce a massive collection of regulations covering just about every part of life.

Given the connotations of the term 'laissez-faire', even purely statistical statements about whether it applies will be potentially interpreted as rhetoric.

I don't think that government regulation is bad, so I can hardly assume it, even as an unstated assumption. I did use the term 'burden', because any regulation IS a responsibility for those who must abide by it. Parenthood is a burden; it doesn't mean parenthood is always bad.

Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income
Distribution
Author(s): Daron Acemoglu, Simon Johnson, James A. Robinson
Source: The Quarterly Journal of Economics, Vol. 117, No. 4 (Nov., 2002), pp. 1231-1294
Published by: The MIT Press
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